Commentary
There were three news items that affected the balance sheet overnight and into morning that influenced wheat in my view. First, Wheat prices came under pressure todayon chatter in the cash market that Iraq cancelled its tender due to high prices. This comes as prices largely remain within the range of the past month to this point. Second, India raised its wheat production estimate even as other forecasters scaled numbers down because of a heatwave. India estimates its wheat crop at 106.84 MMT, up 430,000 MT from its prior forecast. USDA on Friday cut its wheat production forecast for India by 3 MMT to 103 MMT. Remember a few months back it was the Indian government that put export restrictions on wheat due to extreme heat and drought. Then quickly walked it back. Third was two news stories out of Eastern Europe. Ukraine says it will increase its grain exports by 50% over August in September as more ships leave Ukraine’s port for their destinations. Russia’s Sovecon increases the Russian wheat crop estimate 4.8 MMT to 94.7 MMT (US 88 million metric tons). The Indian news was the biggest out of the three in my view, as private estimates had Indian production in the mod 90’s versus a potential 106 MMT. Given Spring wheat is close to 20 percent harvested with good yields coupled with winter wheat harvest close to completion at over 90 percent, this market is in dire need of a increase in domestic demand or a supply side shock in a major producing area in my view. Trade idea below.
Trade Idea
Future-N/A
Options-Buy the Nov KC wheat 750 put, and at the same time sell the 650/750 Nov 22 KC wheat call spread. Bid -85 cents upon entry. KEX22C750:P750:C650[3C]
Risk/Reward
Futures-N/A
Options. The maximum risk is 1.00 or 5K on this strategy plus call commissions and fees. However, if filled at -85 cents, the suggested entry price. one is collecting $4250 upon entry minus commissions and fees. Therefore, the risk here is 15 cents or $750.00 plus commissions and fees. If KC wheat breaks below 8.00. I think the funds could potentially push the underlying December futures to 760 then 720. Given the timing, if this occurs, one may have the opportunity to cover the 3-way option spread higher than -85 cents in my opinion.
Please join me for a free grain and livestock webinar every Thursday at 3pm Central. We discuss supply, demand, weather, and the charts. Sign Up Now
Walsh Trading, Inc. is registered as a Guaranteed Introducing Broker with the Commodity Futures Trading Commission and an NFA Member.
Futures and options trading involves substantial risk and is not suitable for all investors. Therefore, individuals should carefully consider their financial condition in deciding whether to trade. Option traders should be aware that the exercise of a long option will result in a futures position. The valuation of futures and options may fluctuate, and as a result, clients may lose more than their original investment. The information contained on this site is the opinion of the writer or was obtained from sources cited within the commentary. The impact on market prices due to seasonal or market cycles and current news events may already be reflected in market prices. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
All information, communications, publications, and reports, including this specific material, used and distributed by Walsh Trading, Inc. (“WTI”) shall not be construed as a solicitation for entering into a derivatives transaction. WTI does not distribute research reports, employ research analysts, or maintain a research department as defined in CFTC Regulation 1.71.
Sean Lusk
Vice President Commercial Hedging Division
Walsh Trading
312 957 8103
888 391 7894 toll free
312 256 0109 fax
Walsh Trading
53 W Jackson Suite 750
Chicago, Il 60604